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Why Is the ECB Politically Independent?

The recent decision by the German Constitutional Court has triggered an avalanche of commentary about the primacy of European law and about the political independence of the European Central Bank. These are important issues for debate. I am persuaded by colleagues like R. Daniel Kelemen, for example, that you cannot have a ‘rule of law’ in Europe without a clear hierarchy of legal interpretation. Hence, while I can see the point being made by the German constitutional court about its obligations to uphold the constitutional rights of German citizens, I can also see why the European Court of Justice would insist on having the last word in any assessment of whether a European institution acted within its European mandate.

By contrast, the debate about the political independence of the ECB has taken a detour. The focus lies too narrowly on whether complying with the German court would or would not violate the ECB’s political independence given the wording of the Treaty on the functioning of the European Union and the Statute of the European System of Central Banks. That focus is too legal and in any event crabwalks back into the debate about the primacy of European law. The focus should lie on why the ECB is politically independent instead. Along the way, we should ask whether that independence is necessary for the ECB to forge an effective response to the current economic crisis.

But no one has either the time or the patience to read through two decades of academic puzzling. That long answer is only important for those who want to understand why the short answer is so lacking in nuance.

In turn, that strategy would work best with a clear hierarchy that put the politics on top of the monetary policymaking at the European level. Central bankers may bristle when their advice is not taken, but so do epidemiologists, generals, and trade negotiators. The arguments for central bank independence are not about the separation of powers; they are about improving the delivery of policy outcomes. Coordination is better than independence in moments of crisis – and politicians, not central bankers, will have to call the shots and accept the responsibility for the calls they make.

The bottom line is that we would all be better off if there was some mechanism for suspending the political independence of the ECB during moments deep uncertainty and economic crisis. Even central bankers would benefit insofar as they would be able to re-establish their political independence – and, more important, the legitimacy of that arrangement – once the crisis has passed. This is the lesson former Deputy Governor of the Bank of England, Paul Tucker, learned as a result of the last crisis; it is even more relevant today.

What this means in legal terms is that the European Council would be wise to find some way to create an exception to those clauses in the Treaty and the Statute that ensure the political independence of the ECB. It also means that the European Council would have to come up with a coherent economic strategy for responding to the crisis. Those things may seem unlikely, but they are nevertheless important for us to debate. If instead we focus more narrowly on whether the German constitutional court or any other political actor is impinging on the political independence of the ECB, we are more likely to find ourselves at the end of this crisis having abandoned the notion of central bank independence, full stop.